Stupid Investment of the Week

This computer-financing scheme is a guaranteed loser

BOSTON (MarketWatch) -- Successful investing is about trade-offs and balances, the right mix of risk and reward, greed and fear mixed into a solution that provides a reasonably successful outcome.

For someone struggling with debt and credit issues, a big purchase -- one that promises to help build a better credit score -- can be a significant investment. But too often these no-money-down, no-bank-account-needed deals are out of balance, focusing too much on the payment and credit terms and not enough on the value for the money being laid out.

That's precisely the situation that exists in the new computer deals being offered by Guaranteed Computer Finance, which is why the computer program is a Stupid Investment of the Week.

Stupid Investment of the Week showcases the issues and traits that make one investment less than ideal for the average consumer, in the hope that spotlighting the danger zones in one case will make them easier to root out elsewhere. The column is not intended as an automatic sell signal, as there are times when getting out of a problem situation simply compounds the trouble; that is frequently the case in purchase agreements, where defaulting on payments midstream can result in the loss of the product and more damage to an already-shaky credit report.

While a computer is hardly a traditional investment, it does qualify under the dictionary definition of "the laying out of money in the purchase of some kind of property." With Guaranteed Computer Finance catering to the credit-impaired, there's little doubt that the purchase of a computer is a significant investment.

Alas, the Guaranteed Computer deals are a bad deal for the consumer in more ways than one. You can view them for yourself at www.credit4pc.com.

Guaranteed Computer Finance, which also advertises on television, promises that your credit situation is no impediment to buying a computer. It doesn't matter if you've been through bankruptcy, have liens and judgments filed against you, if you have unpaid bills, collection agents on your tail or more, so long as you've got an active bank account and the bucks necessary to make your payments.

And those payments will be $29.99 a week for a full year for a computer that's barely a step above a typewriter. While the site talks about a flat-panel monitor and a GFC "approval specialist" named Jamie told me about the "super-fast processor," the truth is that a consumer could buy a computer with equal or greater capabilities from Gateway or Dell for about $450.

By comparison, the GCF computer, which has an Intel Celeron processor instead of the more-desirable Pentium, runs about $1,650 after the full year of payments and $99 down payment are factored in. Upgrades could raise the cost by another $8 to $10 per week. And the GFC computer is only delivered after that upfront money plus five weeks of payments have been delivered, meaning the consumer must have $250 in upfront money, or more than half of the total cost of buying a similar computer outright.

Obviously, Guaranteed Computer is hoping that the reason its customers became "credit-impaired borrowers" is that they have some impairment that keeps them from doing math and determining that they are paying a Rolls Royce price to buy the Yugo of computers.

Credit repair?

I couldn't find out precisely what company officials are thinking, because I could not reach them. Apparently, the approval specialists weren't approved to make that connection.

But the approval specialists made it clear that these deals were really for people who also need to build their credit. Once those initial payments are made and the computer is shipped, the company reports payments to the three major credit bureaus, a move which helps to improve your credit (the company is so sure its customers have horrible credit that it sends a report called "Turbo-Charging Your Credit in Just 91 Days" to everyone who buys a computer.

The problem is that one good mark on a bad history isn't all that much help. Moreover, a cost-conscious consumer could save up the money required to buy the computer, use it to arrange for a secured credit card and use that card to buy the same quality computer for a lot less money.

"Maybe you are willing to overpay for the computer because you think it will help you with your credit," says Paul Richard of the Institute for Consumer Financial Education in San Diego, "but you can build your credit and get a computer for a lot less money if you just do a little homework, and you put that payment money aside for a little while."

And if going the installment-financing route seems like the only option, GCF still isn't giving the best price. While there are worse deals out there -- like the ones offered by Blue Hippo, a previous Stupid Investment of the Week -- some basic Web surfing produced offers for similar deals priced at around $20 a week, not great but a whole lot better than Guaranteed Computer.

Says Gerri Detweiler, author of "The Ultimate Credit Handbook:" "Even consumers who have been through bankruptcy can legitimately improve their credit without having to drastically overpay for the things they want. ... Paying too much money won't help their credit score, and they probably can't afford to pay too much anyway, so they need to look for a way to get what they want without paying through the nose for it."

Carmen parting

An SIOTW update: You may have heard the news this week that actress Carmen Electra split from husband Dave Navarro. The bulk of the celebrity coverage focused on how the couple seemed happy, and that there appeared to be no warning signs: Perhaps one clue was that Electra took a position as resident dating expert for Luvoo.com
LVTI
in June.

The news that Carmen herself will be on the dating scene again didn't help Luvoo stock, which was profiled in this column less than a month ago. It dropped more than 10% this week, and is now off more than 60% since Electra got involved in the company's ad campaigns. See previous Stupid Investment of the Week.

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